Question 1

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Increase in affiliate's E & P

Accepted Answer

A) Increases stock basis of subsidiary 
B) Decreases stock basis of subsidiary 
C) No effect on stock basis of subsidiary

Question 2

A Federal consolidated filing group aggregates its separate charitable contributions for the tax year, deductions for which then are subject to an annual limitation of 10% of consolidated taxable income.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Accepted Answer

A) Professional sports team operating as a limited partnership. 
B) Japanese corporation engaged in multinational operations, including two-thirds of its activities in the U.S. 
C) Japanese corporation engaged in multinational operations, including one-third of its activities in the U.S. 
D) U.S. corporation engaged in the nuclear energy industry.

Question 4

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return.
-Interest income from Detroit School District bonds

Accepted Answer

A) Group item 
B) Not a group item

Question 5

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not.
-Sales amounts (after returns and allowances) are combined in the consolidation process.

Accepted Answer

A) Tax and book treatment is the same 
B) Tax and book treatment differ

Question 6

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return.
-Dividends received deduction

Accepted Answer

A) Group item 
B) Not a group item

Question 7

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

Accepted Answer

A) The consolidated ACE adjustment could be reduced for the filing group. 
B) Recognition of losses from certain intercompany transactions is deferred. 
C) The tax basis of investments in the stock of subsidiaries is unaffected by members contributing to consolidated taxable income. 
D) The § 1231 loss of one member is not offset against the § 1231 gain of another member of the group.

Question 8

One of the motivations for the consolidated return rules is to discourage conglomerates from trafficking in the deductible ____________________ of other entities.

Accepted Answer

The answer of One of the motivations for the consolidated...

Question 9

A Federal consolidated group reports a net operating loss for the year. How is this amount allocated to the various group members? Why is this allocation important?

Accepted Answer

The answer of A Federal consolidated group reports a net...

Question 10

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Tax treatment of operating losses when the basis of the payor's stock is zero

Accepted Answer

A) Advantage of consolidating 
B) Disadvantage of consolidating 
C) Neither an advantage nor a disadvantage

Question 11

In computing consolidated E & P, a negative adjustment is allowed for the group's disallowed travel and entertainment expenditures.

Accepted Answer

A) True 
 B)False

Question 12

Gold, Silver, and Tin are the affiliates in a Federal consolidated group. Each of the members conducts traditional manufacturing activities. Is a domestic production activities deduction (DPAD) available to the group members? Explain.

Accepted Answer

The answer of Gold, Silver, and Tin are the affiliates...

Question 13

The consolidated return rules combine the members' transactions involving ____________________ items (e.g., § 1231 gain/loss) when computing consolidated taxable income.

Accepted Answer

The answer of The consolidated return rules combine the members'...

Question 14

If one member sells an asset with a realized gain to another member of an affiliated group, any gain on the transaction is not recognized at that time; such a deferral applies the ____________________ rule.

Accepted Answer

The answer of If one member sells an asset with...

Question 15

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Member's operating loss

Accepted Answer

A) Increases stock basis of subsidiary 
B) Decreases stock basis of subsidiary 
C) No effect on stock basis of subsidiary

Question 16

The losses of a consolidated group member are subject to both the SRLY rules and a § 382 limitation. When both limitations apply, the § 382 restrictions override the SRLY rules for this affiliate.

Accepted Answer

A) True 
 B)False

Question 17

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Binding nature of election over multiple tax years

Accepted Answer

A) Advantage of consolidating 
B) Disadvantage of consolidating 
C) Neither an advantage nor a disadvantage

Question 18

All affiliates joining in a newly formed consolidated return must consent to the election on Form 1122, as attached to the Form 1120 for the group.

Accepted Answer

A) True 
 B)False

Question 19

The domestic production activities deduction (DPAD) of the affiliates is an example of an item that is computed on a ____________________ basis on a Federal corporate income tax consolidated return.

Accepted Answer

The answer of The domestic production activities deduction (DPAD) of...

Question 20

A consolidated Federal income tax return may be the product of a merger of the affiliates, or another corporate combination.

Accepted Answer

A) True 
 B)False

Exam 8: Consolidated Tax Returns

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Increase in affiliate's E & P

A Federal consolidated filing group aggregates its separate charitable contributions for the tax year, deductions for which then are subject to an annual limitation of 10% of consolidated taxable income.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return. -Interest income from Detroit School District bonds

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not. -Sales amounts (after returns and allowances) are combined in the consolidation process.

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return. -Dividends received deduction

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

One of the motivations for the consolidated return rules is to discourage conglomerates from trafficking in the deductible ____________________ of other entities.

A Federal consolidated group reports a net operating loss for the year. How is this amount allocated to the various group members? Why is this allocation important?

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Tax treatment of operating losses when the basis of the payor's stock is zero

In computing consolidated E & P, a negative adjustment is allowed for the group's disallowed travel and entertainment expenditures.

Gold, Silver, and Tin are the affiliates in a Federal consolidated group. Each of the members conducts traditional manufacturing activities. Is a domestic production activities deduction (DPAD) available to the group members? Explain.

The consolidated return rules combine the members' transactions involving ____________________ items (e.g., § 1231 gain/loss) when computing consolidated taxable income.

If one member sells an asset with a realized gain to another member of an affiliated group, any gain on the transaction is not recognized at that time; such a deferral applies the ____________________ rule.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Member's operating loss

The losses of a consolidated group member are subject to both the SRLY rules and a § 382 limitation. When both limitations apply, the § 382 restrictions override the SRLY rules for this affiliate.

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Binding nature of election over multiple tax years

All affiliates joining in a newly formed consolidated return must consent to the election on Form 1122, as attached to the Form 1120 for the group.

The domestic production activities deduction (DPAD) of the affiliates is an example of an item that is computed on a ____________________ basis on a Federal corporate income tax consolidated return.

A consolidated Federal income tax return may be the product of a merger of the affiliates, or another corporate combination.